Tyler Cowen's Response
By David Henderson
On this blog a couple of days ago, I challenged Tyler Cowen on two issues. He responded to both in the comments section of my post and on his own blog today. His responses on both are unsatisfactory. Here’s why.
1. The issue of whether Milton Friedman would have advocated a bailout of banks last fall.
I said he would not have but, instead, that if he had feared a collapse of the money supply, as many of us did, he would have advocated that the Fed purchase more bonds to get more liquidity into the banking system. In their book, Free to Choose, Milton and Rose Friedman write:
The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended–or at least sharply reduced–the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money. Unfortunately, the Fed’s actions were hesitant and small. In the main, it stood idly by and let the crisis take its course–a pattern of behavior that was to be repeated again and again during the next two years.
That is not a bailout, at least as that term is normally understood. And remember that Bernanke et al, in advocating the bailout last fall, were not just advocating what the Fed already had the power to do.
Tyler cites an interview with Friedman but I read through the interview and can’t find any mention of bailing out banks. He does say that if the Fed wasn’t going to do its job as lender of last resort during the 1930s, then the FDIC should have done it. But that’s his second-best; his first-best is to have the Fed do its job.
Interestingly, also, Tyler doesn’t respond to the two monetary economists, Bill Woolsey and Jeff Hummel, who supported my analysis in the comments section. Rather than repeat them here, I recommend that you go to my post and scroll down.
Update: Larry White has now added 2 comments supporting my analysis.
2. Tyler’s Accusation of Pretense
Tyler didn’t address this issue. He appeared to address it in the comment section of my post But he didn’t address it. Instead, he pointed out that he had been critical of many others besides libertarians. He’s right. He has. And one of his best criticisms was of Naomi Klein’s book.
But that doesn’t address what I said. An accusation of pretense comes pretty close to an accusation of lying and I don’t recall him making such accusations against non-libertarians. Again, as I said in my original post, I may be wrong, which is why I asked readers if they could find counter-examples. But to present it as a true counterexample, you can’t just cite a criticism: you need to cite an example where he accused someone of pretense.
Moreover, I’m not saying that Tyler should have accused her of pretense. I prefer discussions in which people don’t do that, which is why I like so much of what Tyler does. I was simply pointing out an asymmetry.